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Singapore Express Trust

22-9-2016

Singapore is a vibrant and dynamic, well developed, modern city-state, strategically located at a major global crossroads in the heart of Asia. Asia-Pacific recorded robust HNWI population and wealth growth rates for the period 2009 – 2015, highest across the globe, and in this time period also surpassed North America as the region with the highest population of HNWI. The combined HNWI wealth in the region was some US$17.4 trillion[1].

While perhaps not traditionally thought of as a global wealth management hub for HNWIs, such as Switzerland, Singapore is recognized as a premier wealth management hub offering investors direct and unparalleled access to regional and global markets. A recent Deloitte report stated that while Switzerland remains the world’s wealth management leader, other locations, especially Singapore, are catching up rapidly[2], and data by an industry research group, WealthInsight, suggests that Singapore’s share of global offshore wealth is expected to outstrip Switzerland by 2020[3].

In 2014, international private wealth management accounted for USD 9.2 trillion worth of assets under management (“AUM”) and administration. Singapore’s AUM rose to USD 1.69 trillion, with about 30% year-on-year growth, and attracted SGD 408 billion (USD 287.81 billion) in net inflows. This was represented by 591 Registered and Licensed Fund Managers, 81% of which funds were sourced from outside of Singapore.

This increase in wealth management activities is not only due to the region’s explosive economic growth in recent decades, and the large number of wealthy individuals who reside in Singapore (Singapore has highest number of millionaires per capita of any country in the world), but as well due to the steady flow of assets from wealthy individuals overseas who recognize the benefits of a Singapore trust. In 2015, except for Hong Kong, the only other international wealth management centre attracting net new assets was Singapore, with net new assets growth of USD 40 billion. 

In addition, many of the leading global financial institutions, as well as global accountancy, legal, tax advisory and financial firms call Singapore home. Singapore’s strong and stable AAA rated economy, attractive tax regime, effective regulatory environment, and market and business friendly policies make Singapore especially attractive for the international investor.

The two types of Singaporean express trusts are: 

 

  • Qualifying Foreign Trust in which the Settlor and Beneficiaries are not Singaporean residents or citizens

   

  • Domestic Trust in which the Singapore Settlor cannot be the sole beneficiary
 

With both types of express trusts, a Settlor sets up a Trust with a professional trust company licensed by the Monetary Authority of Singapore (“MAS”). Trusts can be classified according to their various features, in terms of fixed versus discretionary, or revocable versus irrevocable, and local versus foreign - with the Trustee holding the trust assets.

The Singapore Government’s Promotion of Trusts

Singapore trust law is based substantially upon familiar English trust law principles. The Singapore government amended the Trustees Act (“TA”) to facilitate and promote wealth management in Singapore through the use of trusts and trustee services in order to enhance Singapore’s position as a leading financial and wealth management centre. 

Trusts in Singapore are primarily regulated by the TA and the Trust Companies Act (“TCA"). All trust companies must be licensed and are supervised by the MAS, which is the designated regulator of trust companies under the TCA. The MAS has a stringent supervisory regime, and supervises trust companies in a number of ways, which may include conducting off-site reviews, on-site inspections, audit procedures, and company visits.

Among many other regulatory requirements, a licensed trust company is required to appoint at least two resident managers with certain minimum credentials, who must be approved by the MAS after a “fit and proper” test to ensure their suitability for the role. In addition, trust companies in Singapore are required be compliant with the supervisory regime, which calls for the proper infrastructure and corporate governance to be in place.

There are also several other features and advantages of a Singapore express trust, which include:

Strict Confidentiality

In addition to the mandatory licensing and capital requirements, and a robust regulatory regime for all trust companies in Singapore, the Singapore Government has also enacted comprehensive secrecy and confidentiality provisions to protect the personal information of the trust company clients, settlors, and beneficiaries.  

Tax Efficiency

Currently, Singapore has a territorial based tax, and only taxes foreign-sourced income upon its remittance (or deemed remittance) into Singapore. Accordingly, only income that is earned or received in Singapore will be subject to a Singapore tax. 

  • There are no capital gains taxes in Singapore and the estate duty was abolished in 2008. 
  • Singapore’s highest personal income tax rate is 20%, and its corporate tax rate is a flat 17%.  
  • In addition, Singapore has an extensive network of double taxation agreements with over 70 jurisdictions. 
  • There is no tax on income derived by a qualifying foreign trust or its underlying holding companies, where all of the settlors and beneficiaries are foreigners (e.g. neither citizens nor residents of Singapore), and the trust is administered by an approved Singapore trust company.
  • Domestic trusts are granted certain tax exemptions on specified locally-sourced investment income and foreign-sourced income.

Investment Advisor

An investment advisor can be appointed to direct investments of a Singapore trust, pursuant to section 90 (5) of the TA, which enables the settlor reserve his power of investment of trust funds.

Anti-Forced Heirship

Under the TA, beneficiaries of a Singapore Trust who are non-Singapore citizens or nonSingapore domiciled, are not subject to forced inheritance and succession rules of their home countries, provided the trust is governed by Singapore law and the trustees are resident in Singapore. 

Asset Protection

A Singapore trust will not be void or voidable in the event of the settlor’s bankruptcy or insolvency, subject to a five-year claw-back provision. 

Perpetuity

Under Singapore law, trusts are valid for a maximum period of a hundred years, unless a shorter period is specified in the trust deed. The income of the trust may also be accumulated for the duration of the trust period. At the end of the trust period, the trustees may also pour the funds or assets held in trust, into a new trust, with a new validity of a hundred years.

Conclusion

Singapore, a wealthy, economically, stable and well-developed, modern city-state with an established and growing financial industry, has a thriving and growing trust industry to complement its role as a growing regional and global wealth management, financial, and banking hub. 

Singapore trust law is substantially modeled upon familiar English trust law principles.  In addition to a robust regulatory regime and trust company licensing requirements, Singapore trusts offer unique advantages in terms of confidentiality, tax efficiency, the control settlors can continue to exercise over assets settled into a trust structure, and the fact that Singapore offers tremendous investment options and opportunities in an ever more relevant part of the world.



[1] Capgemini Financial Services Analysis, 2016 https://www.worldwealthreport.com

[2] Deloitte & Touche LLP, Deloitte Global Wealth Management Centre Ranking 2015 (9 February 2015) http://www2.deloitte.com/sg/en/pages/financial-services/articles/deloitte-global-wealth-management-centreranking-2015.html

[3] WealthInsight, The Center Cannot Hold: Singapore to overtake Switzerland as leading Offshore Hub by 2020 (April 2013), http://www.privatebankerinternational.com/Uploads/NewsArticle/829644/1a82a8ed-7130-4dae-a951f8b214e6efd8.pdf